EU finance ministers agreed on Friday to grant Ireland and Portugal seven more years to pay their bailout loans, easing the burden on their economies and paving the way for a quicker return to sustainable growth.
In their attempts to stabilize the economy of the 17 nations sharing the euro currency, the ministers, also approved a 10 billion euro (US$13 billion) loan package to stop Cyprus from sliding into bankruptcy.
However, the rescue comes at a heavy price for the Mediterranean island country.
Cyprus, with an annual economic output of under 18 billion euros, must itself contribute 13 billion euros to turn its economy around.
However, there was only little progress made on the other plan EU officials have billed as vital in turning the tide in the EU’s three-year debt crisis — setting up a full-fledged banking union.
The 17 eurozone finance ministers endorsed the legal framework for a central authority for Europe’s banks, which had been hammered out by government representatives and the European parliament last month. It is set to take effect next year.
On the fundamental question of setting up a joint bank resolution mechanism and enabling Europe’s bailout fund to directly recapitalize troubled banks, ministers reached no conclusion.
European Commissioner for Economic and Monetary Affairs Olli Rehn said “the timeline for establishing a banking union should be as short as possible.”
Jeroen Dijsselbloem, who chairs the meetings of the Eurogroup of finance ministers, said he expected the ministers to agree on the outstanding issues by June.
The decision to extend the loan repayment schedules for Ireland and Portugal was backed on Friday afternoon by the finance ministers of all 27 EU countries. Irish Minister of Finance Michael Noonan said the approval was “a very positive development and marks another significant step on Ireland’s and Portugal’s journey to a full and sustainable return to the markets.”
The repayment extensions are intended to ease financial pressure on the countries, helping them resume long-term bond sales when their bailout loans run dry.
Ireland’s loans run out later this year, while Portugal’s loans are set to run out next year.
The situation in Portugal was complicated last week when the country’s constitutional court struck down parts of the austerity program the government agreed to in return for an 78 billion euro bailout. The government is to unveil new plans next week to meet its deficit reduction targets. Those measures will have to be assessed by the country’s so-called troika of creditors — the European Central Bank, the European Commission and the IMF — to see whether they plug the shortfalls.
Ireland in 2010 received a 67.5 billion euro loan package after having to bail out its banks, which had made risky bets that went wrong following the 2008-2009 global financial crisis.